Tax season is the time of the year when you hear the whole world sigh. We understand that no person enjoys filing the taxes, even if they have professionals to handle their taxes. Fines and penalties are very common especially in Scotland, often due to unintentional mistakes. However, if you are running the taxes right, managing your small business’s taxes should be an all-year-round process.
You must always keep up-to-date to avoid unwanted stress and rush during the tax season. Unfortunately, common small business tax mistakes keep happening if the count accumulates at the year-end. Tax mistakes are inevitable when you are not keeping daily updates in small businesses. Let us find out more about them.
5 mistakes you must avoid for small businesses in Scotland
Mistakes are common in the business world, but we are here to help you in avoiding them in future. Here, we shall talk about the top common tax mistakes you should avoid while filing your taxes for your small business.
1. Unable to file or send proper payments and forms
Every small as well as big business in Scotland needs to report to the HMRC. For example, you have to register and set up a PAYE scheme when you hire employees. It will include obligations, responsibilities and compliance with Real-Time Information reporting.
The legal structure is different for every business. No matter which category you fall under, you need to file and send all the forms to the HMRC and the State government. It is determined by what type of industry the business belongs to and the number of employees you have. Owning a small or start-up business in Scotland, a 19% tax rate must be paid by the owner. The tax rate depends on the size of your business.
Files like payroll taxes, sales tax, and estimated income tax have to be filed quarterly. Some files need annual submission. You have to send them directly to the workers and employees you are paying throughout the years so that they file their own taxes.
Accounting and payroll software is available to remind you about the timely payments and forms that are necessary. In addition, an annual calendar will help you significantly to remain up-to-date.
2. Underreporting and underestimating
For a sole proprietor, self-employed person, or a partner, quarterly tax payments are most relevant depending on the estimated tax bill of the year. You may not always be aware of the exact amount, but you must have a close or approximation of the amount or else you may have to submit a penalty for underestimating and underpaying.
HMRC will charge you for the errors you make. For example, underestimating or misrepresenting your tax liability. You can issue a penalty notice, but within 12 months from the date HMRC establishes your penalty. Therefore, you must always be prepared and strive for accuracy. For prompted disclosures, the penalty charge may cross 50%.
3. Mixing Business and Personal expenditure
If you have a small business, start-up, or are new in the Scotland business industry, there are high chances of mixing things like personal and business taxes. There are strict rules in Scotland against the mixing of funds. Hence, you must make sure that the business finances are put separately.
The business-related expenditures are only deducted from your income for tax purposes. Therefore, you must have a separate bank account for your business. Use the business credit card only when purchasing for your brand or company. In case of the personal assets for your business, like your home office or car, remember to keep proper detailed records so that you can support deductions you take. If you do not document, you will not be able to deduct.
4. Improper record-keeping
If you leave your taxes for the last minute, you will surely miss out on the deductions you need to make as a result of improper record keeping.
A proper system can help you to track all income and expenses. Each month, ensure that you reconcile all cash flow and credit card statements with your bank. Nowadays, many new software applications have come up that will help you in preparing tax returns and keep you on top of your finances.
5. Not taking proper deductions
You must never take deductions that are not authorized, or else penalties will be charged. According to government rules, to make a deduction, you must meet one of these conditions:
- It is authorised or needed by legislation (like in the case of NIC or income tax).
- It has been authorised by the workers’ contract- given that the worker is provided with the physical copy of all the relevant terms or a proper written explanation.
- The worker has accepted it in written format before it has been produced.
The best you can do to avoid all big and small mistakes is to remain organised and honest. Doing things in time and in a properly organized manner will yield you better results and zero penalties. Small business in Scotland is rising every day. If you abide by all the guidelines, you can have a smooth-running business with a less stressful tax season.